Colorado Court Finds Failure to Name True Owner Invalidates Lien

Colorado Court Finds Failure to Name True Owner Invalidates Lien

The Colorado Court of Appeals, Division II, answered “When a party fails to name the true owner in the notice of intent to file a lien, what happens to the validity of the mechanic’s lien?” 

The Case

In the case of Moore Electric Company v. Ambassador Builder Corporation, plaintiff-appellant Moore Electric Company provided electrical work pursuant to a contract with Ambassador Builder Corp., defendant-appellee, also known as Ambassador Homes, Inc. Moore was not paid for its work and subsequently filed two mechanic’s liens encumbering multiple properties.

In the first mechanic’s lien, Moore listed Ambassador as the prime contractor as well as owner of eight properties identified in the lien.  The lien was mailed to Ambassador, as the owner or reputed owner of the properties.

In the second mechanic’s lien, Moore named Ambassador and Joe DeMarco, the sole shareholder of Ambassador, as the owner of the listed properties, which included DeMarco’s personal residence which Moore had performed work on.  The lien was again served on Ambassador.

When filing the liens did not prompt payment, Moore filed suit to foreclose its mechanic’s liens on a total of 10 properties, naming Ambassador and the record owners of the liened properties as defendants. Several of the liens were dismissed before trial and once at trial, a judgment of dismissal was entered as to all defendants except Ambassador.

The court found that Moore’s notices of intent to file mechanic’s liens were defective because the true owners of the properties were not named in the notices.

The Appeal

On appeal, the court addressed the sole issue of whether Moore complied with Colorado’s statute governing the notice of intent. Colorado’s statute provides that in order to preserve any lien for work provided or materials furnished, there must be a notice of intent to file a lien statement served upon the owner or reputed owner of the property at least ten days before filing the lien statement.

C.R.S. 38-22-109. Lien statement (3) In order to preserve any lien for work performed or laborers or materials furnished, there must be a notice of intent to file a lien statement served upon the owner or reputed owner of the property or the owner’s agent and the principal or prime contractor or his or her agent at least ten days before the time of filing the lien statement with the county clerk and recorder.

“Reputed owner” is defined as one who has to all appearances the title to, and possession of, the property.

Moore argued that Ambassador was the reputed owner because it paid the bills, supervised construction, and performed every task an owner would.  Therefore, according to Moore, notice of intent served upon Ambassador was proper.

The appellate court, however, disagreed.

The court found that Ambassador’s actions were consistent with that of a general contractor and did not, in and of itself, indicate ownership.

Further, Moore’s claims of Ambassador’s ownership are refuted by the record in which there are copies of recorded warranty deeds by which Ambassador transferred ownership to private owners prior to the filing of the notices of intent.  Accordingly, by the time Moore filed the notices, the true owners were readily ascertainable.

Since Moore failed to comply with the statutory requirements set out in § 38-22-109(3), C.R.S.1973 (1981 Cum. Supp.), it failed to meet its burden of proving its right to a mechanic’s lien. Moore’s fatal mistake cost it a mechanic’s lien that would have encompassed several properties.

Although Moore believed it was in compliance with statute when it served notice upon the entity it believed to be the owner (and which up until shortly before the filing of the notices was the owner) the Colorado court was unforgiving.

This case is hardly an anomaly.  Courts across the country generally impose stringent requirements on those seeking mechanic’s liens, holding liens unenforceable where even seemingly minor mistakes were made.

Takeaway

Carefully review statute, ensure proper parties are notified in the proper format and if all else fails, seek legal guidance!

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